We have been getting lots of questions lately about whether PeopleSoft really intends to maintain its three separate product lines. An erroneous but widespread belief exists that application software companies can really only manage one product line, and that eventually the J.D. Edwards products must be rewritten and merged into the PeopleSoft code set.
The Bottom Line: PeopleSoft will keep its Enterprise (formerly PeopleSoft 8), EnterpriseOne (formerly J.D. Edwards 5), and World product lines separate. It is the right decision strategically and economically, and it reflects a continuing trend among large software companies to serve multiple markets and customer bases with multiple product lines.
What It Means: Most software company acquisitions can be classified as either niche products or suite products, and the two require very different business strategies. Niche products generally fill a gap in the vendor’s existing product line or are intended to be sold as add-on products to the existing customers. As a result, they are likely to be rewritten because they need to be fully integrated into the main product. Suite products are normally acquired because they have a substantial (and lucrative) customer base and they serve some new vertical, geographic, size, or platform segment. The Takeaway: These products are rarely rewritten or merged because it is prohibitively expensive and likely to jeopardize the very important installed base maintenance revenue.
PeopleSoft’s acquisition of J.D. Edwards made sense because it improved PeopleSoft’s ability to compete in the midmarket and in manufacturing industries. It also added thousands of customers and $900M in revenue, much of it from the installed base. PeopleSoft understood from the beginning that the customers running their businesses on World or J.D. Edwards 5 were not going to be interested in ripping out their Enterprise Resource Planning (ERP) system and replacing it with PeopleSoft 8. The Takeaway: We can’t think of a single example in this industry in which customers replaced their business system because the vendor wanted them to--it just doesn’t happen.
PeopleSoft’s decision to leave the products separate is not only important to preserve the installed base revenue and customer relationships, but it also makes sense from a new business perspective. Prospects want to buy products that are designed for their industries and any functionality that is not relevant to them is viewed as unnecessary complexity. Most vendors have simply evolved their main product line to address as many vertical and size markets as possible, and the result has been giant product suites with thousands of switches and configuration parameters. The Takeaway: The J.D. Edwards acquisition gives PeopleSoft two separate product lines designed to serve very distinct markets, and they would be crazy to spend millions of dollars to combine them into one very complex product line.
Conclusion: For several years, AMR Research has been advising application vendors that they need to become multiproduct-line businesses. Buyers no longer embrace the idea of a “one size fits all” product, and there are many opportunities to grow revenues and enter new markets by acquiring additional product lines.
PeopleSoft and most of its competitors now have multiple product lines, and they are very likely to add more. Large businesses in nearly all industries sell and support a number of products, and there is no reason that the software market should be any different. In order to sustain their growth, enterprise application companies will have to expand into new markets, which is certain to mean more acquisitions and more product lines.
AMR Research originally published this article on 8 December 2003.